The major international equity indexes have lost ground this week, dropping by 3 to 4% in average. It appears that the recent numbers issued by companies have increased the global fear of a deepening recession. Despite a clear sign of confidence regarding its own future provided by Munich Re last week and notably its decision to keep its dividend per share stable, investors prefer giving more importance to the bad side of the coin for instance the disappointing Swiss Re numbers. The big giants have adopted different strategies and it seems that the German company is weathering the storm better. In the banking sector, the two biggest Swiss banks CREDIT SUISSE and UBS have announced billions of losses for 2008 but both companies see improvements ahead and expect good news already in Q1 2009.

Even though the overall environment doesn’t look great, I’ve got the feeling we are entering a phase of exacerbated pessimism in opposition to the irrational exuberance described by Alan Greenspan when he was talking at the Annual Dinner and Francis Boyer Lecture of The American Enterprise Institute for Public Policy Research in Washington in December 1996. Are financial markets so emotional that they exaggerate all kinds of perceptions in the highs as well as in the lows? According to me, there are clear signs of over-reaction or anticipation resulting in above-average volatility on the equity markets, which adds more uncertainty for the future of the insurance and the banking industry. That being said, the economical slowdown is a necessary cure to get back to basics. Then, we will enter into a sound prosperity for a while before diving in some kind of amnesia and enter a new exaggeration phase. The economy and especially the financial industry need bubbles to surf on but now it’s time to rest a bit before finding the next one…